Latvia: A critical delay in IMF disbursements
Overview:
Agreement of the IMF-led EUR7.5 billion financial package in December improved confidence in the fixed exchange rate regime. However, questions still remained over the sustainability of the peg to the Euro and the ability of the Godmanis-led government to implement tough economic reforms in the midst of a sharp economic downturn. Indeed, the incumbent government survived just a couple of months before falling in the face of street protests. A new five-party coalition has been formed around the opposition New Era party. It has committed to implementing the reform program. However, the budget must be rebalanced given a much larger than anticipated growth contraction. In the meantime, IMF (and other IFI) disbursements have been delayed and foreign exchange reserves are falling rapidly.